House Value Jumping? Save Your Home Improvement Receipts

Columnist Ron Lieber says “a tax time bomb is ticking” for a growing number of homeowners who have been fortunate enough to realize big gains in the values of their residences. Single homeowners with gains of more than $250,000 and married people who have seen value increases of at least $500,000 could end up paying federal tax of as much as 23.8 percent on such gains over those amounts when they sell. Depending on location, additional state taxes loom for some of them, too. For those in this predicament, Lieber notes that there is a “small pile of paperwork” you must begin filing away now and keep until you sell the house — paperwork that is for all the improvements that have been made to the property. The cost of such improvements counts against the gain. So, even a single remodeling can offset the gains by well into the six figures. Currently, real estate website Zillow calculates that 3.8 percent of the homes nationwide are now in the tax zone for single people and that 1.2 percent have reached the threshold for married couples. However, the number of people affected is much higher in such expensive cities as San Francisco, San Jose, and New York. Lieber concludes that “the Bible for all of this is Internal Revenue Service Publication 523: Selling Your Home.” On page 12, homeowners will find the IRS-approved list of things that can be subtracted from your gain before you determine whether it’s below or above the $250,000/$500,000 limit. | Read More